Correlation Between AU Optronics and Global Lighting

Can any of the company-specific risk be diversified away by investing in both AU Optronics and Global Lighting at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining AU Optronics and Global Lighting into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AU Optronics and Global Lighting Technologies, you can compare the effects of market volatilities on AU Optronics and Global Lighting and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in AU Optronics with a short position of Global Lighting. Check out your portfolio center. Please also check ongoing floating volatility patterns of AU Optronics and Global Lighting.

Diversification Opportunities for AU Optronics and Global Lighting

0.82

Correlation Coefficient

AU Optronics  Global Lighting

Very poor diversification

The 3 months correlation between 2409 and Global is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding AU Optronics and Global Lighting Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Lighting Tech and AU Optronics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on AU Optronics are associated (or correlated) with Global Lighting. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Lighting Tech has no effect on the direction of AU Optronics i.e., AU Optronics and Global Lighting go up and down completely randomly.

Pair Corralation between AU Optronics and Global Lighting

Assuming the 90 days trading horizon AU Optronics is expected to generate 0.75 times more return on investment than Global Lighting. However, AU Optronics is 1.33 times less risky than Global Lighting. It trades about -0.08 of its potential returns per unit of risk. Global Lighting Technologies is currently generating about -0.09 per unit of risk. If you would invest  1,705  in AU Optronics on September 15, 2024 and sell it today you would lose (130.00) from holding AU Optronics or give up 7.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

AU Optronics  vs.  Global Lighting Technologies

AU Optronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AU Optronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Global Lighting Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Lighting Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with AU Optronics and Global Lighting

The main advantage of trading using opposite AU Optronics and Global Lighting positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AU Optronics position performs unexpectedly, Global Lighting can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Global Lighting will offset losses from the drop in Global Lighting's long position.

The idea behind AU Optronics and Global Lighting Technologies pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.